ISSN: Vol. 3, Issue. 6, June 2014 TAJMMR. M a r k e t i n g & M a n a g e m e n t R e s e a r c h

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1 P u b l i s h e d b y : T R A N S A s i a n R e s e a r c h J o u r n a l s TAJMMR: T R A N S A s i a n J o u r n a l o f M a r k e t i n g & M a n a g e m e n t R e s e a r c h (A Do u b le B lind Re fe r e e d & Re v ie we d I nterna t io na l J o ur na l) INDIAN RURAL MARKET: CHALLENGES AND WAYS AHEAD Jasneet Kamboj* *Lecturer, Department of Commerce, S.A. Jain College, Ambala, India. INTRODUCTION Rural India accounts for around 50 per cent of India s gross domestic product (GDP) and houses nearly 70 per cent of the country s population. The market is a unique mix of burgeoning incomes and growing aspirations of around 850 million consumers who inhabit about 650,000 villages in the country. Some of India s biggest companies generate one-third of their consumers or business from the hinterlands. Hindustan Unilever (HUL) generates about 40 per cent of its total business from these rural markets which also accounts for 30 per cent of Coca-Cola and Maruti s turnover. Of Airtel's 8.6 million DTH customers, about a third comes from rural regions in the country. Consumption habits of people in rural regions are progressively mirroring those in urban areas.due to this changing trend and the massive market, the hinterlands offer tremendous investment opportunity for private players. Rural India housed 75 per cent of all new factories built in the country in the last decade. Also, factories in these areas account for around 70 per cent of new manufacturing jobs. MARKET SIZE Rural India is now being seen as a major hub for investment by India Inc. In the period , spending in rural India reached US$ 69 billion. The per capita gross domestic product (GDP) has grown at a compound annual growth rate (CAGR) of 6.2 per cent since 2000, in the country s rural areas. Rural consumption per person is said to have risen by 19 per cent yearly in the period , which includes some impulse-driven categories. 46

2 At the end of 2013, mobile penetration in rural India was 41 per cent, while handset penetration was a little over 30 per cent. According to industry estimates, there are more than 250 million handsets in rural regions of the country, of which nearly 30 million users access the Internet on mobile phones. INVESTMENTS The following are some of the major investments and developments in the Indian rural sector: Honda Motorcycle and Scooters (HMSI) is establishing a rural vertical in an effort to compete with market leader Hero MotoCorp which has an extensive rural distribution network. Honda plans to improve its 100cc bike segment and bring about a new entry point for HMSI in the country. The company will build its distribution network through the addition of 1,000 sales points within a year, of which 70 per cent will come from rural markets. Canara Bank has extended its support to Biocon Foundation and Orissa Trust of Technical Education and Training (OTTET) for a public private partnership (PPP) with the Odisha government, for an e-healthcare programme aimed at the betterment of rural regions in the state.under this partnership, Biocon Foundation and OTTET will establish an electronic diagnostic facility, an e-health centre managed by local entrepreneurs, at all Primary Health Centres (PHCs) in Odisha. Canara Bank will provide financial assistance for the entrepreneurs while Biocon Foundation and OTTET will provide the necessary training. Bajaj Electricals Ltd plans to set up an integrated research and development (R&D) centre that will help the company create cutting-edge technology and drive innovation across its three business verticals. The company is seeking to increase its focus on non-urban regions, and plans to make appliances aimed specifically at the needs of the rural market, such as irons and mixers. The R&D centre will study market needs and make what the consumer wants, said MrShekhar Bajaj, CMD, Bajaj Electricals. The Tata Group has asked its companies to cooperate with each other in a bid to serve the country s rural regions in a more effective manner. This routes-to-market strategy is the first of other major initiatives being tried out by the company. The plan is still nascent but it is believed that Tata Strategic Management Group, the Group s in-house management consulting arm, is working with the companies and will likely launch a pilot project shortly. ROLE OF RURAL MARKET IN INDIAN ECONOMY Majority of the villages are well connected to the urban areas. With the advent of various technologies, the communication is fast and rural consumers get to know about the various products and brands in the way well understood by them. Everything from FMCG, consumer durables, insurance, telecom etc all industries have an easy reach to the rural markets. Even the companies are well targeting the rural markets as the increasing competition in the urban markets is making these markets stagnant. The rural markets are giving the companies a good share in the market. Even the rural consumers are well adapting to the modern way of living. The increasing level of education among the rural people makes it easy for the marketers to pass on their 47

3 message across the rural markets. The Indian consumer base is highly supported by the rural population (about 70 per cent of the country s population), which drives revenues for many major conglomerates operating in diverse markets in India. For many years, rural India was not much acknowledged by the retailers. But as the bottom of the pyramid is getting empowered with education, higher purchasing power and awareness, companies are looking for opportunities in hinterlands. The concept of Rural Marketing in Indian Economy has always played an influential role in the lives of people. In India, leaving out a few metropolitan cities, all the districts and industrial townships are connected with rural markets. The Rural market in India is not a separate entity initself and it is highly influenced by the sociological and behavioral factors operating in the country. The Rural population in India accounts for around 627 million, which is exactly 74.3 percent of the total population. Some of the important features or characteristics of Rural Marketing in Indian Economy are being listed below: With the initiation of various rural development programmes there have been an upsurge of employment opportunities for the rural poor. One of the biggest cause behind the steady growth of rural market is that it is not exploited and also yet to be explored. The rural market in India is vast and scattered and offers a plethora of opportunities in comparison to the urban sector. It covers the maximum population and regions and thereby, the maximum number of consumers. The social status of the rural regions is precarious as the income level and literacy is extremely low along with the range of traditional values and superstitious beliefs that have always been a major impediment in the progression of this sector. The steps taken by the Government of India to initiate proper irrigation, infrastructural developments, prevention of flood, grants for fertilizers, and various schemes to cut down the poverty line have improved the condition of the rural masses. CHALLENGES FACED BY RURAL MARKET IN INDIA The peculiarities of the rural markets and rural consumers pose challenges to the marketers in reaching them effectively. While making out a case for opportunities that are rapidly developing in rural markets, one should not underestimate the several daunting problems in planning for growth. Due to these problems marketing efforts are constrained in several ways. There are a large number of small villages which are not easily accessible because of all weather roads. Rural consumers are far less homogeneous than urban consumers. Similarly the rural market is facing various challenges in India, that are as follow: LOW PER CAPITA INCOME: Per capita income is lower in rural areas compared to those in urban areas. Again, the distribution of rural income is highly skewed, since the 48

4 land holding pattern, which is basic asset, itself is skewed. Thus the rural population presents a highly heterogeneous spread in the villages. SEASONAL MARKETING: The main problem of rural marketing is seasonal demand in rural areas, because 75 percent of rural income is also seasonal. For example, the demand for consumer goods will be high during the peak crop harvesting period, because this is the time at which the rural peoplehave substantial high cash flow. Rural marketing depends upon the demand of rural people and demand depends upon income and consumer behavior. PACKAGING: It is the first important step of product processing. If the packaging cost is high, it will increase the total cost of products. It is suggested that the marketers should use cheaper materials in packaging for the rural markets. For example, small polypack of refined oil is more popular than in containers of the same product due to its lowest cost. One more important factor is the size package e.g. the size of the package should be small. LOW RATE OF LITERACY: The literacy rate is low in rural areas compared to urban areas. This again leads to the problem of communication for promotion purpose. Print medium becomes ineffective and to an extent irrelevant in rural areas since its reach is poor. TRANSPORTATION PROBLEMS: Transportation infrastructure is quite poor in rural India. Nearly 80 percentages of villages in the country are not connected by wellconstructed roads. Marketing activities require transportation facilities. Due to poor transportation facilities, farmers and marketers find it difficult to reach markets. WAREHOUSING: In the rural areas, there are no facilities for public as well as private warehousing. Marketers face problem of storage of their goods. MEDIA PROBLEMS: Media have lots of problems in rural areas. Television is a good medium to communicate message to the rural people. But due to non-availability of power, as well as television sets, majority of the rural population cannot get the benefits of various media. Similarly, to get the survival in the competitive in market, the marketers have to cope up the various challenges before them like educating the rural consumers about the requirements and uses of the products. The marketers should also make the rural consumers understand how their product is different from similar products offered by competitors. This leads to better involvement on part of buyer and fosters long lasting relationship between consumer and company. FUTURE OF INDIAN RURAL MARKET Consumption patterns in rural markets are undergoing a change. Brands are no longer a novelty and premium products are a regular feature. Products which have traditionally been difficult to 49

5 deliver in these regions are slowly penetrating the market. Amul, for one, has opened parlours in rural areas with their sales believed to be outstripping those from urban areas. There is also big demand for products once viewed as being exclusively urban, such as chocolates, cheese and pizzas. Nielsen estimates that rural India s FMCG market will touch US$ 100 billion by Online portals are expected to play a vital role for companies trying to access these markets. The Internet allows for a cost-effective means to increase a company s reach by overcoming geographical barriers. Today, with rural India being gradually empowered with computers and smartphones, the Internet will soon gain a foothold. There are many opportunities waiting to be exploited in the area of rural marketing. There is an increasing convergence between urban and rural consumers especially the young consumers, who have almost same aspirations as that of a young urban consumer. Thus, the marketers can target a certain section of rural consumers in the same manner as they are targeting the urban ones. The purchasing power of rural families has grown rapidly. Rural Marketing Association of India (RMAI) confirms that rural income levels are on a rise. Income from non-farm sector is likely to touch 66% of net rural income by Market size would thus, nearly double. Average rural spending would grow 6 times from current levels in 20 years. Moreover, the percentage of Below Poverty Line (BPL) families declined from 46% to 27%. The various infrastructural problems have been tackled to a great extent. Work is in progress for the better connectivity by roads; more than 90% of villages are electrified. Rural telephone density has gone up by 300% in last 10 years. Rural literacy rate has also improved from 36% to 59%. As its fact, India's rural population accounts for 12.5% of the world's total population, 600,000 villages with 700 million people; the country side thus, offers a huge consumer base and huge opportunity for rural marketers in India. Lastly, the per capita income of top 20%-30% of rural segment is not much different from urban middle class. This means that the affordability of the segment of rural consumers will be almost equal to that of the urban middleclass. Thus, marketers can tap this segment as well with the product he is targeting the urban middle class. GOVERNMENT INITIATIVES The Ministry of External Affairs together with CSC e-governance Services India Ltd is set to launch Passport related services through the extensive network of more than 100,000 common services centres across the rural regions. This would help bring down the digital divide in India. Under the Passport Seva, the Ministry of External Affairs has made it compulsory to complete the form filing process online, which would include payment of applicable fee and scheduling appointments for seeking Passport related services. 50

6 State Bank of India (SBI) has announced a one-year fellowship programme for rural areas named SBI Youth for India (SBI YFI) for 2014, which aims to draft and encourage India s youth to become change agents in the rural regions. The fellowship programme targets young professionals and graduates, who are passionate about leading the change for a better country. With the rising demand for skilled labour among Indian industries, the Indian government plans to train 500 million people by 2022, and is seeking participation of entrepreneurs and private players in the space. The Centre is constantly taking steps towards improving rural education, with rural India, too, embracing online learning in a big way. Several corporate, government, and educational organisations are putting in the effort to train, educate, and produce skilled workers. Job-oriented vocational courses are today offered online which equip students with specific skill sets as well as a degree. India s growth move is highly driven by the development of the rural people. Players in various industries such as retail, fast moving consumer goods (FMCG), consumer durables, automobiles, are looking towards the untapped potential hinterlands possess. The household consumer expenditure survey for , released by the National Sample Survey Office (NSSO), reveals that rural Indian households are spending more on consumer goods like durables, beverages and services as compared to their expenses on such things five years back. The Indian rural market is an area of darkness to Indian corporate. Rural area is vast in size but amorphous in detail. And yet, the rural market represents the largest potential market in the country. With over 70% of India s population residing in rural areas, capturing these markets is becoming one of the most lucrative options for all sectors. In the wake of economic crisis, while the urban markets remain subdued due to cash crunch, rural economy has remained largely unaffected. A good harvest has further added to their respite. As a result, marketers are focused on small towns and villages with dedicated workforce. At present, rural consumers spend about USD 9 billion per annum on FMCG items and product categories such as instant noodles, deodorant and fabric, with the pace of consumption growing much faster than urban areas. The McKinsey report (2007) on the rise on consumer market in India predicts that in twenty years the rural Indian market will be larger than the total consumer markets in countries such as South Korea or Canada today, and almost four times the size of today s urban Indian market and estimated the size of the rural market at $577 Billion. It is no wonder that even MNCs have cottoned on to the idea of a resurgent rural India waiting to happen. Similarly this paper attempts to analyze the growth of rural market in the competitive world and determine the various challenges and opportunities on the way of its development. CONCLUSION The rural market is where the markets of the future are likely to be. Urban markets are becoming increasingly competitive for many products. In some cases they are even saturated. On the other hand, rural markets offer growth opportunities. Rural market is the market of the new millennium. Marketers will have to understand the rural customers before they can make inroads into the rural markets. Thus, looking at the challenges and the opportunities, which rural markets offer to the marketers, it can be said that the future is very promising for those who can understand the dynamics of rural markets and exploit them to their best advantage. A radical 51

7 change in attitudes of marketers towards the vibrant and burgeoning rural markets is called for, so they can successfully impression the 230 million rural consumers spread over approximately six hundred thousand villages in rural India. 52